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Untitled - Turnaround Management Association

RolandBergeÍ

Strategy Consultants

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20120403_Presentatie_Trojan Horses of Decline_V2,ppt | 2


RolandBeÍgel

Strategy Consultants

Characteristics responsible for the success of companies

1. A bias for action, active decision making - "getting on with it"

2. Close to the customer- learning from the people served by the business

3. Autonomy and entrepreneurship - fostering innovation and nurturing "champions"

4. Productivity through people - treating rank and file employees as a source of quality

5. Hands-on, value-driven - management philosophy that guides everyday practice - management

showing its commitment

6. Stick to the knittíng

7 . Simple form, lean staff

B. Simultaneous loose-tight properties

- stay with the business that you know

- some of the best companies have minimal HQ staff

- autonomy in shop-floor activities plus centralized values

Source: Peters and Waterman (1984), In Search of Excellence

20120403_Presentatie_Trojan Horsesof Decline_V2 ppt | 3


RolanilBeÍger

Strategy Consultants

Selection from 36 most successful companies according to Peters and Waterman

JI\

ATARI

TA]IIER

.-a

IZ4^lNCR I \-tr

V

\'

Source: Business Week; Press research; Wikipedia

20120403_Presentatie_Trojan Horsesof Decline_V2.ppt t 4


RolandBcÍger

Strategy Consultants

Selection of well-known literature on decline

I

Altman, 1968

| > Provides formula to predict bankruptcies (z-score), but does not go into the root causes of company decline

I

Argenti, 1976

| > Argenti's Corporate Cottapse is still one of the more frequently cited books on decline

t -

Miller. í977

| > Argues that failures originate from within a company and are caused by

'intrinsically intenelated factors"

t -

Hambrick and D'Aveni, í988

| > Study of 57 large bankruptcies and 57 survivors; indicates that decline can be seen as a downward spiral

a '

Flagg êt al., í991

| > Predicts which "failing firms" will ultimately go bankrupt, but neglects the root causes of the decline

t -

Pandit.2000

I

t tn 1976, Argenti concluded thathe literature about company downfall at thatime was "rather disappointing"

I

t tn ZOOO, Pandit's literature survey comes to a similar conclusion about the bulk of literature available and

advocates more triangulated and comprehensive Íesearch into decline

I

Slywotsky and Dryzik, 2005

| > Lays out a method for identifying and responding to strategic threats to help companies survive

I

Source: Pandit, 2000; Literature survey

20120403_Presentatie_Trojan Horses of Decline_V2.ppt | 5


RolandBergel

Strategy Consultants

Causes of decline according to majoresearch

> Mismanagement

> Economic cause

> Liquidation of holding

> Problems within management

> Shell companies, dubious

practices

Graydon

entrepreneurship

> Economic conditions

> Archaic management

> Competition

> Health/personal problems

oo&R

> Poor management

> Market-related

> Over-financing

> Under-investment

> Excessive investments

> Cost level too high

> Strangulation contracts

Eource Central Bureau for Statistics (CBS); Graydon; OO&R

20120403-Presentatie-Trojan HorsesoÍDecline_V2.ppt I 6


RolandBeÍgeÍ

Strategy Consultants

Selection of newspaper articles

After nine decades of short stories, Reader's

Digest turns to Chapter 11- Aug 2009

''KIP

CARAVANS

FAILLIET" - Sept 2010

"Lehman Brothers collapse stuns

global markets" - Sept 2008

''BLOCKBUSTER

FILES FOR

"SA/AB files for bankruptcy

protection" - Sept 2011

.II,

BANKRUprcy" - sept 2010 ;ï|,,$:ïHïïi

"Nokia signals crisis with Q2

profit warning" - May 2010

"Borsato-imperium ten onder door

onbehoorlijk bestuur" - Aug 2010

"Fleetwood files for

Chapte r 11" - March 2009

"GM set to file for Chapter 11

protection" - June 2009

''JUDGE

GRANTS ECLIPSE AVIATION

BANKRUPTCY'' - MARCH 2()()9

Source: Press research

20120403_Presentalie_Trolan Horses of Decline-V2.ppt | 7


RolandBoÍger

Strategy Consultants

Value destruction at BAAN and Getronics

With the downfall of Nokia, EUR 205 bn was destroyed

With the downfall of SAAB, EUR 1.3 bn was destroyed

MarketCap in EUR bn

250

MarketOap in EUR bn

30

2.5

150

100

50

'01 '02

'03 'o4 '05 '06 '07 '08 '09 '10 '11

2.0

1.5

1,0

0,5

0,0

'01 '02 '03 '04 '05 '06 'o7 '08 '09 '10 '11

Source: Datastream

20'120403-Presentatie-Trojan Horsesof Decline-V2.ppt | 8


RolaniBoÍger

Strategy Consultants

Atag Group NV

Kitchen design and manufacturing

Baan Company NV Financial and administrative consulting services

Van Heek-Tweka Design, marketing and sale of fashion brands

Management Share

ICT service provider

Pharming

Biotechnology

Fokker

Airplane manufacturer

Getronics

ICT service provider

Numico Research, development and sale of baby food and clinical nutrition

Vilenzo

Design, marketing and sale of fashion brands

ABNAMRO

Bank

AND

Digital mapping data used for location-based services

Buhrmann

Supplier of office products

Geveke Trading and distribution of technical products and machinery

Hagemeyer

Electrotechnical wholesaler

PCM

Publisher

Laurus

Retailer (grocery store)

DAF

Truck manufacturer

Aino

ICT service provider

EMiS

Marketing research

Textielgroep Twenthe

Textile and fabric finishing

Ring!Rosa

Computer telephony technology

Toolex International Manufacturer of systems for optical medÍa

UPC

Telecommunications

experienced heavy losses, a

major decline

income or a

state of acute insolvency

Most cases of decline occurred

between 2000 and 2005 - a few

key cases were added (ABN

AMRO, Fokker)

Analysis was based on publicly

available data

20120403-Presentatie-Trojan Horses of Decline-V2.ppt I I


RolandBergeÍ

SÍategy Consultants

Phases of a crisis and when companies respondl% of companies examined, 2005I

C)

(l)


RolandBeÍgel

Suategy Consultants

TIME í 989

í 990-2000

2000-2008 2009-2011

í. lncrease of

strategic risk

. New owner GM does

not recognize

SAAB's quality

brand, distinct design

and loyal customer

base

. Reduced quality

(manufacturing &

engineering)

. Efficiency focus

(Opel) led SAAB

from premium to

middle class brand

crisis

Mismatch between

SA/AB's offering and

client demand

Continuing changes in

senior management

Reduced quality of new

models

Badly hurt image,

especially with their

specific, loyal customer

base

Added value of SAAB

questioned by GM

3. Earnings crisis

rs decreased

prÍce dropped

Spyker

to return to values

. Attempt to retu

old SAAB brand

quality failed due to

lack of time and

funds

4. Liquidity crisis

Inability to pay

suppliers and

employees

SAAB files for

protection from

bankruptcy twice in

three years

Source: SAAB annual reports; Press research; Roland Berger Strategy Consultants

20'120403-Presentatie-Trojan Horsesof Decline-V2.ppt | 11


RolandBeÍgeÍ

Strategy Consultants

lmproved

performance

> The strategy model maps the evolution of a strategy from its initial design through its realization and

outcome

> By viewing a company's actions through the lens of this model, we can see how a company's strategy is

developed and deployed - and where it goes wrong

Source: Roland Berger Strategy Consultants

20120403_Presentatie-Trojan Horses of Decline-V2.ppt | 12


RolanfiBeÍge]

Strategy Consultants

Business model definition

CUSTOMER

o

!v.tue delivery


COMPANY

!v"lue capturing

tl


Ivare compensation

i4 business model is the architecture of value creation within a company which defines the delívery of value

Ío cusÍomers (value delivery), the persuasion of customers

pay for that value (value compensation), and

the conversion of such revenue into profit (value capture)" -Dauid Teece, 2010

Source: Teece 2010; Roland Berger Strategy Consultants

201204O3-Presentatie-Trojan Horses of Decline-V2.ppt | 13


RolandBeÍgeÍ

Strategy Consultants

Example: low-cost carriers

Value delivery

-a

Low-cost airlines like Ryanair deliver passengers from A to B at the lowest

price. Everything that is not central to the basic, safe transportation from A to B

is "devalued": ticketing, leg space, on-board amenities, airport range, sales

agents and connecting flights

Value compensatio

€€€

Low-cost carriers are compensated directly by customers who book online, by

passengers who pay for added amenities, as well as by regional governments

which subsidize the added tourism

Value capture

Low-cost carriers capture value by keeping plane utilization as high as possible.

Each leg must break even or it is canceled, Fleets are standardized to keep

costs down

Source: Roland Berger Strategy Consultants

20120403-Presentatie-Trojan Horses of Decline-V2.ppt | 14


RolandBoÍger

Sffategy Consultants

lmproved

performance

Source: Roland Berger Strategy Consultants

2012O4O3_Presentatie_Trojan Horses of Decline-V2.ppt | 15


RolandBerger

Strategy Consultants

A Trojan Horse is a destabilized business model, caused when a company misjudges

the relationship between what it can do and what its environment demands

MARKET DYNAMICS

Market dynamics are the external

forces which surround companies

and within which companies operate

CAPABILITY

Capability is the sum of all knowledge

and skills that an organization can

apply to achieve success in a

com petitive environ ment

Source: Roland Berger Strategy Consultants

201204O3_Presentatie-Trojan Horses oÍDecline*V2.ppt I 16


RolandBêÍger

Strategy Consultants

ENTANGLED TROJAN HORSE

A business model that runs

fu ndamental ly d ifferent

activities in the same way

OUT.OF.FOCUS TROJAN HORSE

A business model that no longer

focuses on creating value for the

customer

TROJAN HORSES

A business model that is not

adjusted to changed market

dynamics

A business model that stretches

beyond a company's capabilities

UNADAPTED TROJAN HORSE

OVERSTRETCHED TROJAN HORSE

Source: Roland Berger Strategy Consultants

20120403-Presentatie-Trojan Horses of Decline-V2.ppt | 17


RolandBergel

Strategy Consultants

DEFINE THE BUSINESS MODEL

TEST THE ROBUSTNESS OF THE

BUSINESS MODEḶ

r'

\

U nbundle

the company's

activities

\

-r'

Measure

the business model

against external changes

./

Define how value is

Check the balance

created for

between risk and reward

cuglmers and

óíher stakeholders

\^

20120403-Presentatie_Trojan Horsesof Decline,V2.ppt | 18

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